TREASURIES-Prices fall on hopes budget crisis can be avoided

By Chris Reese NEW YORK, Nov 19 (Reuters) - U.S. bond prices fell on Mondayas signs of progress in government talks to avoid a loomingbudget crisis boosted demand for riskier assets like stocks andreduced the attractiveness of safe-haven bonds. In the past two weeks Treasuries yields have fallen totwo-month lows as investors fled stocks on concerns that U.S.lawmakers would fail to reach a deal to resolve the $600 billion"fiscal cliff" of spending cuts and tax increases that start tokick in early in the new year and which many fear would send theU.S. back into recession. Stocks rose on Monday however after leading Republican andDemocrat lawmakers expressed confidence on Sunday that theycould reach a deal, even as they stuck to their positions.

"Democratic and Republican policymakers are activelynegotiating over the fiscal cliff, as investors watch and waitwith bated breath. They seem to be making progress, or so theysuggest in their public comments," said Charles Lieberman, chiefinvestment officer at Advisors Capital Management LLC inHasbrouck Heights, New Jersey, adding "until the situation isresolved, markets are likely to remain volatile." Stocks were trading over 1 percent higher and Treasuriesfell, with benchmark 10-year notes losing 9/32 inprice to yield 1.61 percent, up from 1.58 percent late Friday.Benchmark notes were on track for the biggest single-day rise inyield in nearly two weeks. Treasuries were largely taking cues from other markets asinvestors wait on new information relating to the economicimpacts of recent storm Sandy, the wrangling over the fiscalcliff and ahead of the Federal Reserve's next policy meetingDec. 11-12. A number of other factors including ongoing concern overEurope's debt crisis and rising tensions in the Middle East areexpected to keep a bid for bonds, likely limiting yield gains. "There are a lot of variables, I don't think we are going togo any place soon," said Sean Murphy, a Treasuries trader atSociete Generale in New York. There was greater optimism on Monday that euro zone leaderswill agree to release much-needed aid for Greece. European officials are expected to discuss a two-yearfunding plan for Athens at a meeting on Tuesday, which wouldpostpone any longer-term solution until after a September 2013German general election. Some investors were also reluctant to take new positions asrisk aversion rises heading into year-end. "There is a reluctance to get involved given how manyfactors are influencing the market. The European situationshould be enough to contain prices, but we could see slightlyhigher rates in the near term if we get a positive resolution onany of those fronts," said Murphy. Trading volumes are also expected to be light this week withlittle in the way of top-tier economic releases on tap, andahead of the U.S. Thanksgiving holiday on Thursday. The Treasuries market will be closed on Thursday and willclose early on Friday at 2 p.m. EST (1900 GMT). Thirty-year bonds on Monday were trading 18/32lower in price to yield 2.76 percent, up from 2.73 percent lateFriday.